Embassy News

Cyprus can join EMU on January 1st, 2008
2006-11-09 10:19:49

Belgium, Nov 9 -- Cyprus and Malta according to the European Commission's Autumn 2006 economic forecasts can join the Economic and Monetary Union (EMU) on January 1st, 2008, as they wish, EU Commissioner for Economic and Monetary Affairs Joaquin Almunia has said.

The Spanish Commissioner said the two countries fulfill the criteria for the accession in the eurozone adding that the governments of Cyprus and Malta should submit at the beginning of next year their applications for accession. In April the Commission and the European Central Bank will issue their decision.

According to the procedure followed for Slovenia, which joins the
on January 1st, 2007, the decisions for Cyprus and Malta can be taken at the ECOFIN Council in May or June 2007, and will later be confirmed by the European Council.

According to the the European Commission's Autumn 2006 forecasts for Cyprus, the country's economic activity remained strong in the first half of 2006. Real GDP growth in the first two quarters was 3.4% and 3.8% year on year, respectively. Growth is projected to further accelerate in the fourth quarter of the year and decelerate in the fourth quarter, which should lead to GDP growing at 3.8% over the whole year.

Economic activity is being mainly driven by strong domestic demand. Although slightly decelerating compared with last year, private consumption remains healthy, supported by historically low interest rates and sustained credit expansion, as well as by continued employment and wage growth. In parallel, buoyant private investment in construction, particularly housing, as well as a rebound in equipment, is accelerating investment to a 5% growth rate.

Overall, domestic demand is projected to contribute around 4 percentage points to GDP growth. This will be only slightly offset by the negative contribution of net exports. Reflecting weak re-export activity, which slowed down in the first six months of the year, exports of goods should almost stagnate compared with the past two years.

Concurrently, despite the decline of tourism arrivals, revenue from tourism actually increased in the first 8 months in real terms, while export-oriented services are benefiting from the positive outlook in the main export markets. Total exports are now projected to grow at close to 6% in real terms. This is very close to the rate estimated for total imports, which should follow strong domestic demand and investment activity.

GDP is projected to continue growing solidly at 3.8% in 2007 and 3.9% in 2008, driven by domestic demand which would contribute around 4 percentage points to growth.

Investment should remain robust and continue growing by close 5% per year until 2008. In line with buoyant economic activity employment is projected to keep growing at around 1 ½% per year until 2008.